Broker snap: UBS bullish on 'Help to Buy' potential for housebuilders

26th Mar 2013 09:26

UBS has upgraded its ratings for both Redrow and Bovis and now has 'buy' recommendations across the whole UK housebuilding sector, saying that the government's new initiatives should be beneficial for stocks.In spite of a strong sector performance as of late - housebuilders have jumped 58% over the past 12 months - UBS reckons that the 'Help to Buy' scheme announced in the Budget should "provide further upside".The initiative involved a £3.5bn share equity funding for new build starting in April 2013 and a mortgage guarantee scheme for all transactions, indemnifying lenders for up to 15% of the home price, supporting up to £130bn of gross lending.UBS said: "We are particularly bullish about the shared equity component because it: 1) prevents capital tie-up from homebuilders for shared equity sales; and 2) could lead to new home-price inflation."The broker added that the shared equity component should lead to a margin uplift of around 70 basis points (bp), assuming it replaces older shared equity schemes (FirstBuy and NewBuy) which had scheme costs of 300-400bps of sales.Accounting for more gross margin accretion from inflation in 2014, the broker's margin forecasts have risen by an average of 150bp across the sector. Meanwhile, average earnings per share (EPS) estimates have been upped by 16% for 2014.UBS has lifted its price targets for housebuilding stocks by an average 22%, leaving more than 20% upside to the sector as a whole. "We see most upside in Bellway, Redrow and Taylor Wimpey."The UK household goods and home construction sector was making gains of 1.03% in mid-morning trade on Tuesday.BC